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# Statistics Essay

2935 words - 12 pages

Unit 6 CASH BENEFITS

6.1. Efficiency and equity in retirement pensions 6.2. Efficiency and equity in unemployment benefits 6.3. Efficiency and equity in poverty relief

INTRODUCTION
New unit → 1st Economic fundamentals of the Welfare State 2nd Welfare State programs cash benefits in-kind benefits

- There is a complex set of cash programs - Quantitative and qualitative differences Some of the most important goals of the WS are channeled through cash benefits - income and consumption smoothing - insurance - poverty reduction - redistribution - social solidarity

Main questions
- What justifies public pensions? - What are the main schemes? - Is capitalization (funded pensions) a ...view middle of the document...

INSURANCE, EFFICIENCY AND EQUITY IN PUBLIC PENSIONS
b) Equity Redistributive effects of pensions 1.- Intergenerational redistribution. Pay-as-You-Go enables a generation as a whole to receive more than the sum of its past contribution (benefits do not depend on previous contributions). 2.- Redistribution from rich to poor. Individual B with half the income of A pays half the contribution, but receives a pension that is more than half of A’s ⇒ Do other factors work in the opposite direction? Better-off people collect their pensions longer 3.- Redistribution from men to women. Lower retirement age in women and greater life expectancy. If they pay equal contributions and receive equal benefits there is redistribution from men to women. 4.- Redistribution over the life cycle. A public system of pensions allows redistribution from higher earnings periods to retirement.

2. OBJECTIVES OF PUBLIC PENSION SCHEMES

Main goal of any pension scheme: ensuring a sufficient level of income in
retirement → two decisions: At what age do retirement benefits start? How much is considered enough?

- Decisive factors in determining public pension spending:

G P cN P c NP = = ⋅ Y Y (Y / L) L
where GP is pension spending, Y is GDP, c is the average pension, NP is the number of pensioners and L is employment

2. OBJECTIVES OF PUBLIC PENSION SCHEMES
a) RETIREMENT AGE -Economic perspective → there is a threshold from which the productivity of the working population decreases. - Income maintenance programs → facilitate labor market exits of the less productive workers → improvement in average productivity / higher rates of economic growth: * * * Y Y L  Y  Y   L  →   =  +  = x N L N N  L  N  If this replacement yields  Y  > 0 and  L  ≥ 0 ,  Y  > 0       L N N - Social perspective → preference for leisure (increasing with age) might justify retirement at an earlier age - Implications → ∆ life expectancy, ∇ retirement age → ∆ time period receiving pensions + delay in labor market entry - Increasing retirement age? ⇒ there will be a reduction in public costs (higher pensions but lower length) but no productivity gains: higher youth unemployment rates & shorter leisure periods for the elderly.
* * *

2. OBJECTIVES OF PUBLIC PENSION SCHEMES
b) THE LEVEL OF BENEFITS Dilemma: - ensuring a minimum subsistence level to prevent retirement to cause an insufficient consumption of basic goods (equal minimum for all) - ensuring an income level not very different from earnings before retirement (avoiding a drastic reduction of income) 1st option → public system 2nd option → private / public system - Equity impact? - minimum subsistence level → a fraction of total population would only enjoy minimum levels of welfare (only individuals sufficiently farsighted would have adequate welfare levels) - private pensions → remarkable administrative costs & uncertain profitability

3. METHODS OF ORGANIZING PENSIONS
a) PAY-AS-YOU-GO (PAYG)...

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